Both have sector-leading credit ratings thanks to their low leverage and healthy coverage ratios. That said, Magellan Midstream Partners does have a lower leverage ratio, which has consistently been below 4.0 times over the past decade. Enterprise's ratio, on the other hand, has risen from an average of 3.5 times earlier this decade to its current level north of 4.0 times due in part to two recent acquisitions. However, its leverage ratio is still comfortably below that of other MLPs, and it maintains a healthy distribution coverage ratio giving it an ample margin of safety.

Still, all things considered, Magellan Midstream Partners is a bit stronger financially due to its lower leverage.

Comparing the asset bases

With an enterprise value of $80 billion, Enterprise Products Partners is by far the larger of the two with Magellan Midstream only a quarter of its size at $20 billion. With that larger scale comes greater diversification across several commodities:

Source: Enterprise Products Partners Investor Presentation.

While the bulk of Enterprise Products Partners' gross margin comes from its NGL pipeline and services segment, the company's assets consist of fee-based pipelines, processing plants, and export facilities across the oil and gas value chain. That focus on fees is crucial because the company's direct exposure to volatile commodity prices is less than 15% of its gross operating margin, which is a significant shift from five years ago. That enabled the company to deliver relatively stable cash flow during the current oil market downturn.

Magellan Midstream Partners, likewise, is primarily focused on fee-based assets, though refined products and crude oil pipelines and services supply most of its operating margin:

Source: Magellan Midstream Partners Investor Presentation.

Overall, just 14% of Magellan's margin comes from commodity-related activities, which makes its cash flow about as stable as Enterprise's.

Still, while both companies have minimal direct exposure to commodity prices, Enterprise's larger scale and greater diversification give it the win in this category.

A look at the upside

Where these companies differ is in their visible upside. Enterprise Products Partners is currently undergoing a major expansion phase with $5.6 billion of projects under construction and expected to be in-service by 2018. The projects include a petrochemical facility, crude oil, refined products and NGL pipelines, and an export dock. That clearly visible pipeline of projects should enable Enterprise to extend its distribution growth streak -- which is currently up to 48 consecutive quarters -- for several years into the future.

Magellan Midstream, on the other hand, only has $1.3 billion of construction projects under way, $850 million of which are expected to be in service by the end of this year. That currently leaves it with minimal growth on the horizon in 2017 and 2018 when the bulk of Enterprise's major projects are expected to come online. While Magellan estimates that it has another $500 million in potential growth projects in the pipeline, Enterprise is also actively pursuing the development of new organic growth projects.

With a much larger and more visible growth pipeline, Enterprise Products Partners appears to have more upside potential.

Investor takeaway

While Magellan has a slightly stronger balance sheet, the much larger Enterprise Products Partners simply has more to offer investors. Not only is its current yield higher, but it has clear visibility to continue growing its payout for at least the next two years due to its healthy project backlog. That combination makes it the better buy right now in my opinion.

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